Population Ageing and the Public Finances in Ireland September 2021 - Prepared by Economics Division Department of Finance
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Population Ageing and the Public Finances in Ireland September 2021 Prepared by Economics Division Department of Finance www.gov.ie/finance Department of Finance | Annual Report on Public Debt in Ireland Page | i
Population Ageing and the Public
Finances in IrelandExecutive Summary Tail risks to the public finances – such as a global pandemic – are inherently difficult to assess and to predict, both in terms of timing and impact. Other risks to the public finances, however, are much more visible, much more certain and much more quantifiable, at least within reasonable margins. In this latter sub-set of fiscal risks, suitable fiscal planning can help to mitigate the costs and limit the fallout from these developments. Chief amongst the identifiable risks is the impact that an ageing population will have on the public finances in Ireland. Here, the scientific evidence is clear and unambiguous: people are living longer, while fewer babies are being born in Ireland; in short, Ireland’s population is ageing. This natural process is set to accelerate over the medium- and longer-term. Cross-country populations projections show that Ireland will have one of the most rapidly ageing populations in the EU over the coming decades. While Ireland’s demographic structure is relatively favourable at present, shifting demographics in the coming decades will result in a slower pace of economic expansion and increased age-related public expenditure. Slower revenue growth (as a result of more modest economic expansion) and rising expenditure (as a result of age-related fiscal costs) will put significant pressure on the public finances. The old-age dependency ratio in Ireland – a proxy for the number of retirees as a fraction of the number of workers – is set to near-double over the next 30 years, from 24 per cent at present to 47 per cent by the middle of this century (53 per cent by 2070). To put it another way: there are currently around 4 persons of working age to support each person aged 65 and over; by 2050, the equivalent figure will be just over 2. Such shifts in the demographic structure of the population will involve increased outlays in demographically-sensitive components of public expenditure, such as pensions and healthcare. Analysis set out in this document shows that age-related expenditure is set to increase by 8 percentage points of GNI* by the mid-point of the century. In other words, this means by 2050 the annual cost of age-related expenditure is set to be €17 billion higher, in today’s terms, than in 2019. Revenue increases will not be sufficient to fund all of these additional expenditure pressures. This is because growth in the productive capacity of the Irish economy is expected to slow significantly, as demographic trends weigh on additional labour supply. As public revenue evolves in line with economic growth, slower revenue growth will make it more difficult for the public finances to absorb the increase in age-related spending. Simulations show that, in a hypothetical scenario in which there were no further policy responses, the fiscal costs associated with population ageing would add around 20 percentage points to the debt-to-GNI* ratio by 2050. Beyond 2050, the fiscal position is expected to deteriorate significantly, with the debt-to-GNI* ratio reaching 180 per cent by 2070. A no-policy change approach is, accordingly, unsustainable. Structural reforms must be a key part of the policy response. Reforms such as linking the State Pension Age to life expectancy could significantly reduce the cost burden. Department of Finance | Population Ageing and the Public Finances in Ireland Page | i
Contents1 Page Executive Summary i 1 Introduction 1 2 Demographic trends in advanced economies 3 2.1 Life expectancy 3 2.2 Fertility rates 3 2.3 Old-age dependency ratios 4 2.4 Summary 5 3 Demographic trends in Ireland 6 3.1 Current demographic structure in Ireland 6 3.2 Evolution of main demographic variables in Ireland 7 3.3 Projected population picture in 2070 13 3.4 Summary 16 4 Evolution of potential growth 17 4.1 Main components of potential growth 18 4.2 Summary 18 5 Age-related expenditure projections 19 5.1 Age-related expenditure projections 19 5.2 Pension expenditure projections 21 5.3 Summary 22 6 Impact of ageing on key fiscal indicators 23 6.1 Impact on the general government balance and debt-to-income ratio 23 6.2 Summary 24 7 Sensitivity Scenarios 25 7.1 Demographic/labour market scenarios 25 7.2 Macroeconomic/covid scenarios 25 7.3 Policy scenarios – change in the State Pension Age 26 7.4 Summary 27 8 Conclusion 28 Department of Finance | Population Ageing and the Public Finances in Ireland Page | ii
Tables, Figures, Boxes and Annexes
Figures
Figure 1 Life expectancy at birth in selected advanced economies 3
Figure 2 Total fertility rate in selected advanced economies 4
Figure 3 Number of people of working age to old-age populations in advanced economies 5
Figure 4 EU member states old age dependency ratios in 2019 6
Figure 5 Annual population growth in Ireland by age cohort 8
Figure 6 Total fertility rate in Ireland 9
Figure 7 Natural increase in Ireland 9
Figure 8 Male and female life expectancy in Ireland 11
Figure 9 Net migration in Ireland 1951-2070 12
Figure 10 Projected population change by age group 2019-2070 13
Figure 11 Population pyramids in Ireland, 2019 and 2070 14
Figure 12 Population aged 20 and over in Ireland by age group 14
Figure 13 Change in the old-age dependency ratio 2019-2070 - comparison with EU MS 15
Figure 14 Old-age dependency ratio – comparison with other EU Member States 15
Figure 15 Evolution of potential GDP 2000-2070 in Ireland 18
Figure 16 Projected change in age-related expenditure in Ireland 20
Figure 17 Projected change in age related expenditure- comparison with EU MS 21
Figure 18 Evolution of key fiscal ratios on a no-policy change basis 24
Figure 19 Social welfare pension expenditure under selected scenarios 26
Figure 20 Social welfare pension expenditure under selected State Pension Age scenarios 27
Tables
Table 1 Evolution of the main demographic variables in Ireland 7
Table 2 Evolution of GDP 18
Table 3 Components of age-related expenditure 19
Table 4 Annual age-related expenditure projections 20
Table 5 Projected annual pension expenditure 22
Table 6 Social welfare pension expenditure projections 26
Table A1 Annual age-related expenditure projections 2019-2070 29
Table A2 Projected annual pension expenditure 29
Table A3 Classification of schemes 30
Table A4 Projected expenditure - below SPA 31
Table A5 Projected expenditure - below SPA but including survivors 31
Boxes
Box 1 Natural increase in population in Ireland 1960-2020 10
Annex
Annex 1 Expenditure projections scaled by GDP 29
Annex 2 Schemes included in pension expenditure projections 30
Annex 3 Further disaggregation of pension expenditure 31
1 The data and analysis set out in this document are compiled by Department of Finance staff. Every effort is made
to ensure accuracy and completeness. When errors are discovered, corrections and revisions are incorporated into
the digital edition available on the Department’s website. Any substantive change is detailed in the online version.
Figures based on data up to early-July 2021.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | iiiChapter 1
Introduction
A projected shift in the demographic composition of the Irish population in the coming decades will pose
significant challenges for the public finances. Under standard assumptions, the old-age dependency
ratio – the number of retirees expressed as a fraction of the number of people of working age – is set
to double between now and the mid-part of the century. This means that while there are currently
around four persons of working age for each person aged 65 and over in Ireland, by 2050 the equivalent
figure will be around two. Population ageing will involve increased outlays in demographically-sensitive
areas of public expenditure, such as healthcare, pensions and long-term care. It will also involve a
moderation in the pace of economic growth, as a key source of growth, namely labour supply, becomes
less prominent.
Sound public finances are a pre-requisite for sustainable improvements in living standards. A key
strategic goal of the Department of Finance is, therefore, the achievement of a “sustainable
macroeconomic environment and sound public finances.” In this context, it is important to understand,
assess, and report on, the impact that shifting demographic trends will have on the Irish public finances.
The purpose of this report is to highlight the likely economic and budgetary impacts of demographic
change in Ireland. The analysis set out in the document attempts inter alia to quantify the likely
budgetary costs of population ageing in order to inform the appropriate policy response. It builds on
work undertaken by the Department of Finance in conjunction with other Finance Ministries in the
European Union, together with the European Commission, through the EU Ageing Working Group
(AWG) 2 to update long-term age-related expenditure projections for inclusion in the 2021 Ageing
Report, published in May 2021.3
The projections contained in this paper are underpinned by long-term demographic projections
produced by Eurostat and macroeconomic projections produced by the European Commission. The
demographic projections, which were published in early 2020, do not take account of the impact of the
pandemic on demographic indicators, while the macroeconomic projections assume a V-shaped
recovery entailing a sharp decline in output in 2020 followed by a return to strong economic growth in
2021, with no long-term structural impact. In these circumstances, risks to the projections presented
herein are, if anything, to the downside.
In November 2020, the Government established the Commission on Pensions to examine the
sustainability and eligibility issues with the State Pension and the Social Insurance Fund. The analysis
and projections outlined in this report formed the basis of the Department of Finance’s submission to
the Commission on Pensions.4
This report is structured as follows. Chapter 2 briefly describes the changes in the demographic
structures of many advances economies over the last number of decades. The rest of the report
focuses on population ageing in an Irish context, beginning with Chapter 3 which highlights the expected
2 Officials from the Department of Finance are members of the Ageing Working Group (AWG), a sub-group of the
Economic Policy Committee (EPC), contributing to the triennial EPC Ageing Report, a set of long-term budgetary
projections underpinned by population projections provided by Eurostat.
3 https://ec.europa.eu/info/publications/2021-ageing-report-economic-and-budgetary-projections-eu-member-
states-2019-2070_en
4
The Department’s submission to the Commission on Pensions is available here:
https://www.gov.ie/en/publication/c199e-department-of-finance-submission-to-the-commission-on-pensions/
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 1demographic shift in the composition of the Irish population over the coming decades. Chapter 4 details the projected impact on the productive capacity of Irish economy of such a change in the demographic structure. In Chapter 5, the budgetary cost of an ageing population is outlined, with particular attention paid to the development of future pension expenditure. Chapter 6 presents, for illustrative purposes, the potential impact of demographic change on key fiscal metrics, on a hypothetical no-policy change basis. Chapter 7 provides an overview of some of the alternative scenarios included in the Department’s analysis. Chapter 8 concludes. Department of Finance | Population Ageing and the Public Finances in Ireland Page | 2
Chapter 2
Demographic trends in advances economies
As outlined in the previous iteration of this report published three years ago, an ageing population is
now a notable feature of most advanced economies.5 People are living longer, while fertility rates –
defined as the number of children born per woman of childbearing age – are falling. This section
documents these trends in three jurisdictions, namely Europe, the US and Japan.
2.1 Life expectancy
Life expectancy has increased significantly in the last 70 years in the developed world (Figure 1), as a
result of a range of factors including reductions in infant mortality, improvements in living standards,
better education levels and medical advances. Such trends in life expectancy are expected to continue
in the coming decades.6 In the early 1950s, life expectancy in Europe for males was 61 years and 66
years for females. By 2070, Europeans will be expected to live more than 20 years longer than they
would have in 1950. Likewise, in the US, by 2070 males will expected to live 18 years longer than they
would have done in the early 1950s, while females are expected to live 15 years longer. In Japan, the
gains in life expectancy are even more note-worthy, with males expected to live for an extra 26 years
and females for an additional 29 years by 2070 compared to the mid-point of the last century. 7
Figure 1: life expectancy at birth in selected advanced economies – both sexes, years
95
Europe US Japan
projection
90
85
80
75
70
65
60
55
50
1950-1955 1970-1975 1990-1995 2020-2025 2050-2055 2065-2070
Source: 2019 United Nations World Population Prospects (medium fertility scenario).
2.2 Fertility rates
While people have been living longer, there has also been a consistent reduction in the number of
children born per mother in the developed world. As highlighted by the OECD, over the last 50 years,
5 https://assets.gov.ie/4147/101218131007-cdad7ec478c4467290c52008da8f536d.pdf
6
OECD Pensions at a Glance 2017. https://www.oecd-ilibrary.org/docserver/pension_glance-2017-21-
en.pdf?expires=1624962692&id=id&accname=guest&checksum=3452A396E99D12A9F066DFDD4E0AFB3D
7 Life expectancy at birth- the average number of years that a new-born could be expected to live, if he or she was
subject to the age-specific mortality rates of a given period.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 3there has been a steady downward convergence in fertility rates across OECD countries. In fact, the
total fertility rate8 is estimated to be below the estimated replacement level (the latter defined as the
number of children needed to keep the total population constant) of about 2.1 in 34 out of 36 OECD
countries. The exceptions to this are Israel with a total fertility rate of 3.04 and Mexico at 2.14. 9 In the
early 1950s, approximately 2.7 children were born per mother in Europe. The United Nations (UN)
estimates this figure has fallen to 1.6 in 2019. The fall in the fertility rate from the mid-point of the last
century has been even sharper in the US and Japan, with estimated fertility rates in 2019 of 1.8 and 1.4
respectively. While difficult to predict, as evidenced by the need to include a range of fertility scenarios
in most demographic projection exercises, the central or medium-term scenario in most long-term
population projection exercises does not envisage any significant return to the rates seen in the past.
Figure 2: total fertility rate in selected advanced economies
3.5
Europe projection
US
3.0
Japan
Replacement Rate
2.5
2.0
1.5
1.0
1950-1955 1970-1975 1990-1995 2020-2025 2050-2055 2065-2070
Source: 2019 United Nations World Population Prospects (medium fertility scenario).
2.3 Old-age dependency ratios
Together, the trends described above are having profound effects on the population structures of most
advanced economies and will continue to do so over the coming decades. Indeed, viewing changes in
the demographic profile of Europe, the US and Japan through the evolution of their respective old-age
dependency ratios (hereafter referred to as the ‘OADR’), we can see a tipping point has already been
reached. The OADR presents the population aged 65 and over as a share of the population aged 20-
64. This commonly used metric provides an indicator of retirees in a population relative to the working
age population.
In 1950, the OADR in Europe stood at just below 14 per cent. The ratio has risen steadily since, more
than doubling to 31 per cent by 2019. This ratio is expected to continue to rise over the coming decades,
reaching 57 per cent by 2070. In other words, Europe will move from having 7 people of working age
for every retiree in the post-war years to less than 2 people of working age for every retiree over the
next half-century.
8 The OECD defines the total fertility rate as the total number of children that would be born to each woman if
she were to live to the end of her childbearing years and give birth to children in alignment with the prevailing
age-specific fertility rates.
9 OECD Pensions at a Glance 2019. https://www.oecd-ilibrary.org/sites/b11cb6e7-
en/index.html?itemId=/content/component/b11cb6e7-en
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 4A similar trend is expected in the US, with the OADR expected to increase sharply over the coming
decades. While the OADR in the US in 1950 was just 14 per cent, by 2070 the OADR is expected to be
48 per cent meaning the US, like Europe, is projected to have just two people of working age for every
retiree by then. Most strikingly, in Japan, a country that had 10 people of working age for very retiree
in 1950, the equivalent ratio is projected to be just over one person of working age for every retiree by
2070.
Figure 3: number of people of working age to old-age populations in advanced economies
12
Europe US
10
Japan
8
projection
6
4
2
0
2055
2060
2065
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2070
Source: 2019 United Nations World Population Prospects (medium fertility scenario).
2.4 Summary
A demographic tipping point in the developed world has now been reached as those born during the
post-war surge in the birth rate in many advanced countries now reach retirement age. 10 As highlighted
by the UN, globally, the population aged 65 and over is now growing faster than any other age group.11
This will have significant implications for societies with increased pressure on the provision of
demographically sensitive services.
10 Those born during this post-war surge in the birth rate are sometimes referred to as the ‘baby boomers’
generation.
11 https://www.un.org/en/global-issues/ageing
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 5Chapter 3
Demographic trends in Ireland
While the previous section highlights the demographic trends in the developed world at a high level, the
remainder of the report focuses specifically on population ageing in an Irish context and the related
impact on the public finances in Ireland. This begins by investigating the evolution of some of the key
demographic variables in Ireland and their projected future paths.
3.1 Current demographic structure in Ireland
Ireland’s current age structure compares favourably to other EU countries. Ireland currently has the
highest share of population aged under 20 years old (27.1 per cent), the joint lowest median age (37.7
years) and the lowest share of the population aged 65 or above in the EU (14.1 per cent). However,
the composition of Ireland’s population is set to change significantly over the coming decades with a
notable increase in the OADR.
The Irish population aged 20 and over amounted to approximately 3.6 million in 2019.12 The population
aged 20-64, a proxy for the working age cohort, stands at approximately 2.9 million13 at present while
those aged 65 and over in the Irish population amount to just over 700,000. This implies an OADR of
24 per cent, i.e. there are around 4 people of working age for each retiree. As evident from Figure 4,
Ireland’s OADR is currently amongst the lowest in the EU at present. At the other end of the spectrum,
Finland and Italy’s OADRs of 39 per cent mean that there are currently only 2 and a half people of
working age to ‘support’ each retiree in those countries. The EU average is 34 per cent.
Figure 4: EU member states old age dependency ratios in 2019, per cent
40
35
30
25
20
LU IE SK CY PL NO MT AT RO ES HU BE LT NL CZ SI EE DK EU LV HR SE EA BG DE FR PT EL IT FI
Source: Eurostat.
12 Eurostat.
13 While the State Pension Age in Ireland is 66 years of age, and recipients can work beyond that age, the use of
the 20-64 is viewed as a good proxy of the working age population and is useful particularly in the context of
international comparisons.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 63.2 Evolution of main demographic variables in Ireland
While at present the demographic picture looks positive from an Irish point of view for the reasons
outlined above, a significant shift in the demographic structure of the Irish population is expected over
the coming decades. As discussed in section 1, the European Council, through its Economic Policy
Committee (EPC), undertakes an exercise every three years to produce long-term age-related
expenditure projections based on updated demographic projections from Eurostat. These expenditure
projections are subsequently published in tri-annual Ageing Reports. The projections from the 2021
Ageing Report, as outlined in this report, are underpinned by Eurostat’s latest long-term demographic
projections, known as EUROPOP2019. This section will provide an overview of the projected evolution
of the key demographic variables in an Irish context from this projection exercise. Table 1 below
highlights the evolution of a number of these key demographic variables.
Table 1: evolution of the main demographic variables in Ireland
unit 2019 2030 2040 2050 2060 2070 peak
Total population 000 4,936 5,526 5,922 6,225 6,405 6,500 2070
Population growth rate % p.a. 1.4 0.8 0.6 0.4 0.2 0.1 2019
Population 20-64 growth rate % p.a. 1.4 0.8 0.0 0.0 0.2 -0.1 2019
Share of working age pop % 58.8 58.6 56.6 53.3 52.6 51.9 2019
Old age dependency ratio % 24.2 30.3 37.4 46.5 50.0 53.0 2070
Males - life expectancy Years 81.1 82.1 83.4 84.6 85.7 86.8 2070
Females - life expectancy Years 84.8 85.8 87.1 88.3 89.4 90.4 2070
Net migration 000 32.7 19.3 16.1 14.4 12.1 10.5 2020
p.a. = per annum.
Life expectancy refers to ‘at birth’,
Based on Ageing Report framework. Source: 2021 Ageing Report and European Commission.
The Irish population is projected to grow by 1.0 per cent on average each year until 2030, with assumed
positive contributions from ‘natural’ factors (births are assumed to exceed deaths) and from net inward
migration, before growing at 0.6 per cent on average per annum until the mid-point of the century,
reaching 6.2 million.
Thereafter, the pace of annual population growth is expected to more than halve to 0.2 per cent, with
the population reaching 6.5 million in 2070. Critically, however, as evident from Figure 5, the population
aged 65 and over is set to grow significantly faster than the population aged 20 to 64, i.e. the working
age population, over this period.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 7Figure 5: annual population growth in Ireland by age cohort, y-o-y growth
4.0%
3.5% 65+
3.0%
2.5% 20-64
2.0%
Total
1.5%
1.0%
0.5%
0.0%
-0.5%
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
2061
2063
2065
2067
2069
Source: Eurostat.
The projection for the population at a point in time is determined by the evolution of three variables:
the number of births;
the number of deaths;
migration flows.
The evolution of these variables are discussed below.
3.2.1 Natural increase (births minus deaths) and life expectancy
Eurostat projections suggest fertility rates in Ireland, which have historically been comparatively high in
a European context, are expected to remain well below levels seen in the early and mid-part of the last
century.
The fertility rate in Ireland is projected to average 1.8 between 2019 and 2070. This is below the
‘replacement level’ of 2.1, i.e. the fertility rate needed to ensure a broadly stable population, assuming
no change in mortality rates and no net migration. This rate is also considerably below the average
fertility rate of 3.3 recorded in Ireland over the 1960-1990 period, as evident in Figure 6 below. The
fertility rate fell dramatically between 1965 and 1994, from 4.0 to 1.9. There was some pick-up in the
rate between 2007 and 2011, when the rate peaked at 2.1, however the rate has been falling again
since, albeit at a relatively slow pace.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 8Figure 6: total fertility rate in Ireland, number
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1970
2012
1960
1965
1975
1980
1985
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2013
2014
2015
2016
2017
2018
2019
Source: Central Statistics Office and Eurostat.
Reflecting the recent reduction in fertility rates in Ireland, the natural increase in the population, i.e.
births versus deaths, is expected to decelerate – eventually turning negative in 2062 (Figure 7). A high-
level analysis of recent trends in the natural increase in Ireland is presented in Box 1.
Figure 7: natural increase in Ireland, thousands
35
30
25
20
15
10
5
0
-5
-10
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
2061
2063
2065
2067
2069
Source: Eurostat.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 9Box 1: natural increase in population in Ireland 1960-2020
Recent data published by the CSO show the natural increase in the Irish population, i.e. the difference
between births and deaths, fell to its lowest level since 2000 last year. 14 The natural increase of just below
24,200 in 2020 was approximately half the level it was in 2008.
The natural increase has been on a downward trajectory over the last decade. As can be seen from the
figure below, the recent decline in the natural increase has been driven nearly exclusively by a fall in the
annual number of births in the country. In fact, the number of deaths per year has remained reasonably
static over the last 60 years (even with a large increase in the population size over the same time).
This decline in the natural increase followed a sharp increase in the number of births in Ireland in the early
to mid-2000s. Indeed, between 2000 and 2008, births increased by an average of 4 per cent each year.
The primary driver of this increase had its origins in the 1970s and 1980s, a period with very high birth rates.
Women born in this period reached the main child-bearing age groups between 2000 and 2010, resulting in
an increase in children born in this period. This period also coincided with EU enlargement in 2004 and
significant net inward migration in Ireland. For example, in 2008 about 9 per cent of the total births in Ireland
that year were to mothers from one of the accession states.15
Since 2009, the number of births recorded in Ireland has been falling by an average of 2.5 per cent per year.
The decline was particularly notable last year, with the level of births falling by nearly 4,000 (-6.4 per cent)
from the levels seen in 2019.
Strikingly, as explained above, the natural increase is projected by Eurostat to turn negative over the next
50 years.
Natural increase in Ireland 1960- 2020
80,000
Births
70,000 Deaths
Natural Increase
60,000
50,000
40,000
30,000
20,000
10,000
1978
1984
1960
1962
1964
1966
1968
1970
1972
1974
1976
1980
1982
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Source: Central Statistics Office
Turning to life expectancy in Ireland, as is the case in most advanced economies, this is expected to
continue rising. Male life expectancy is expected to increase by 5.7 years from 2019 to 86.8 by 2070,
while female life expectancy is expected to increase by a similar degree, 5.6 years, to 90.4 by the same
point (Figure 8).
As outlined already, Ireland currently has a comparatively favourable demographic picture. Despite
this, one driver of the impending shift in the population structure can already be seen when the life
expectancy of those who have recently reached retirement and those born today is compared. Males
14 CSO Vital Statistics Quarter 4 2020.
15
CSO Vital Statistics Annual Report 2008.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 10born today are expected to live 17 years longer than those born in 1951, the cohort that reached the
State Pension Age (SPA) in 2017, while females are expected to live 18 years longer. The long-term
projections suggest this trend will continue and by 2070 life expectancy for males in Ireland will be 22
years greater than it would have been in 1951, while females born in 2070 will be expected to live 23
years longer than those born in 1951. 16
Figure 8: male and female life expectancy in Ireland, years at birth
100 projection
Males Females
90
80
70
60
50
40
30
1901 1936 1951 1981 2011 2019 2050 2070
Source: Central Statistics Office and Eurostat.
3.2.2 Migration
Migration is an additional important channel for changes in the population, playing a particularly big role
in historic changes to the population in Ireland. Ireland has seen several strong waves of migration
flows prompted by periods of economic stagnation, relatively poor living standards and a lack of
employment opportunities. For instance, between 1951 and 1971, net outward migration averaged
approximately 28,000 people per annum – the equivalent of a net loss to emigration of 1.0 per cent of
the total population each year. While the 1970s saw some net inward migration, significant net outward
migration resumed in the late-1980’s, with average net outflows of more than 30,000 people per annum
between 1985 and 1989.
The 1990s brought significant change in economic conditions in Ireland, with substantial net inflows of
people from the second half of the decade. Changed economic conditions and, in particular, a material
improvement in living standards in Ireland from the second half of the 1990s resulted in substantial net
inflows. Over the 1996-2008 period, average net inward migration amounted to 40,000 people per
annum, the equivalent of 1.0 per cent of the population each year. Inward migration peaked in 2007,
with net inflows of 105,000 people, or 2.4 per cent of the population. The credit-fuelled bubble
experienced in the noughties, which raised the output of labour-intensive sectors such as construction
and retail, acted as a strong pull factor, attracting large inflows of workers. At the same time, the pool
of potential workers greatly increased as Ireland allowed full labour market access to the citizens of the
10 new Member States that joined the EU in May 2004
16When comparing the Eurostat life expectancy assumptions to historic life expectancy series from the CSO’s
Vital Statistics Life Tables (VSA30).
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 11The eventual bursting of the credit bubble in the latter part of the decade saw a significant shift in
migratory patterns in Ireland with large net outflows experienced between 2010 and 2014. The
stabilisation of the economy and recovery in the labour market resulted in the return of net inward
migration. The strong performance of the Irish economy and, in particular, the Irish labour market, with
more people at work than ever before, was reflected in the substantial inward flows seen in the last
number of years, prior to the Covid-19 pandemic. Indeed, net inward migration of more than 30,000
people per annum was recorded in both 2018 and 2019.
As evidenced by the trends discussed above, the migration picture in Ireland is heavily linked to the
economic cycle, and as such, future volumes of migration can be difficult to predict. The Covid-19
pandemic adds an additional complexity to this exercise as it remains to be seen whether the pandemic
will fundamentally change people’s behaviours when it comes to migration, or working patterns.
Such complexities mean projections of future migration flows over a long horizon are subject to wide
confidence bounds. However, given the attractiveness of Ireland as a destination, it is not unreasonable
to assume that inward migration will continue to be positive over the long-term, particularly once the
recovery from the pandemic has taken hold. Ireland is a high-income country and, as such, is likely to
remain a destination country for migrants.
Between 2019 and the mid-point of the century, these projections assume net migration to average
approximately +20,000 per annum, broadly in line with the CSO’s M2 migration scenario. 17 From 2050-
2070, net migration is projected to average +12,000 per year.
Figure 9: net migration in Ireland 1951-2070, thousands
120
100
80
projection
60
40
20
0
-20
-40
-60
-80
1987
1951
1955
1959
1963
1967
1971
1975
1979
1983
1991
1995
1999
2003
2007
2011
2015
2019
2023
2027
2031
2035
2039
2043
2047
2051
2055
2059
2063
2067
Estimates of net migration 1951-2018 based on annual population estimates from the Central Statistics Office.
Net migration from 2019 onwards based on Eurostat’s EUROPOP2019 projections.
Source: Central Statistics Office and Eurostat.
17 Migration assumption from the CSO’s Population and Labour Force Projections 2017-2051. The CSO used
three migration assumptions to underpin their long-term pension projections. The M2 migration scenario
represents the midpoint scenario with net inward migration of 20,000 per annum assumed (M1 assumed net
migration of +30,000 and M3 assumed +10,000 per annum. As highlighted by the CSO, annual average net inward
migration for the 20 year period from 1997 - 2016 was 21,400. Therefore, the M2 scenario reflects both current
and 20-year average net inward migration trends. More details available at:
https://www.cso.ie/en/releasesandpublications/ep/p-plfp/populationandlabourforceprojections2017-2051/
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 12It is important to note that, given the timing of their production and publication in the first quarter of 2020,
Eurostat’s EUROPOP2019 baseline population projections do not make any assumptions regarding the
impact of the Covid-19 pandemic. At the time of the publication of this Report, many pandemic-related
travel restrictions remain in place. As such, it is difficult to anticipate the impact the pandemic may have
on migration over the coming years and indeed, over the long-term.
3.3 Projected population picture in 2070
While the demographic projections expect a large rise in the Irish population out to 2070, the
composition of the population will be very different by this point. As explained above (and shown in
Figure 5), the population aged 65 and over, the proxy for the retired population, is expected to grow
significantly faster than the working age population. This will have a substantial impact on the age-
profile of the population. As evident in Figure 10 below, the size of the population in Ireland aged 65
and over, and 80 and over will increase dramatically between 2019 and 2070. The change in the
composition of the population will be much more dramatic than most other EU member states.
Figure 10: projected population change by age group 2019- 2070, percentage point change
420
370
320 65+ 80+ 20-64 Total
270
220
170
120
70
20
-30
IE SE DK FR BE ES DE EU 27 IT EL
Source: Eurostat.
The projected shift in the composition of the Irish population is clearly visible in Figure 11 below. This
figure shows the so-called ‘population pyramid’ – the share of the population accounted for by each
five-year age cohort in 2019 and in 2070. Indeed, the share of those aged 85 and over is expected to
be roughly 4 times higher than was the case in 2019. While the share of the Irish population in the 85
and over bracket was the smallest of all the cohorts in the pyramid in 2019, by the end of the projection
period, it is projected to become one of the largest.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 13Figure 11: population pyramids in Ireland, 2019 and 2070
80 - 84 80 - 84
70 - 74 70 - 74
60 - 64 60 - 64
50 - 54 50 - 54
40 - 44 40 - 44
30 - 34 30 - 34
20 - 24 20 - 24
10 - 14 10 - 14
0-4 0-4
10% 8% 6% 4% 2% 2% 4% 6% 8% 10% 8% 6% 4% 2% 2% 4% 6% 8% 10%
Share-2019 Male Share-2019 Female Share-2070 Male Share-2070 Female
Source: Eurostat.
In addition, the share of the working age population (WAP), defined here as those aged 20-64 relative
to the total population, is set to decline consistently over the projection period, from 58.8 per cent in
2019 to 51.9 per cent in 2070.
Figure 12: population aged 20 and over in Ireland by age group
6,000
Population aged 20-64 Population aged 65 and over
5,000 projection
4,000
population ('000s)
3,000
2,000
1,000
0
2000 2010 2020 2030 2040 2050 2060 2070
* 2000-2013 population data from the CSO. Population estimates from 2014 onwards are based on Eurostat
estimates/projections. Source: CSO Population and Migration estimates, Eurostat EUROPOP 2019 and Eurostat
demography and migration database
Reflecting these changes, the OADR in Ireland, is set to more than double from 24.2 per cent in 2019
to 53.0 per cent in 2070.18 These developments will make Ireland one of the most rapidly ageing EU
18The OADR is defined here as the population aged 65 and above divided by the population aged 20-64. This
definition allows international comparison. The State Pension Age in Ireland is 66 years of age. If the OADR is
reclassified as the ratio of the population aged 66 and above divided by the population aged 20-65, the OADR
would be projected to more than double from 22 per cent in 2019 to 50 per cent in 2070.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 14Member States, as evident in Figure 13, which shows Ireland is set to have one of the biggest increases
in its OADR in Europe.
Figure 13: change in the old-age dependency ratio 2019-2070, percentage point change
40
35
30
25
20
15
10
SE DE DK FR CZ BE NL NO FI EA CY BG EU HU AT SI EE IT EL IE LV HR PT ES RO MT LT LU SK PL
Source: Eurostat.
Such changes will see Ireland converge towards EU norms in terms of demographic structure by 2070.
Strikingly, the OADR in Ireland is set to overtake the current equivalent figure in Italy, a country viewed
as already battling the adverse effects of an aged population, over the next 20 years.
Figure 14: old-age dependency ratio - comparison with other EU Member States, per cent
80 Italy
Greece
70 Ireland
Italy 2019
60 EU 27
Germany
50 France
40
30
20
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
2061
2063
2065
2067
2069
Source: Eurostat.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 153.4 Summary Ireland currently has a favourable demographic profile. In fact, it currently has the joint lowest median age in the EU. This profile is set to change dramatically in the coming decades however, with Ireland projected to be one of the fastest ageing populations in Europe. This is highlighted by the fact that in just 30 years, the ratio of workers for each retiree in Ireland is expected to fall from 4-to-1, to just 2-to- 1. Department of Finance | Population Ageing and the Public Finances in Ireland Page | 16
Chapter 4
Evolution of potential growth
Long-term economic forecasts rely on the assumption that output moves in line with the growth rate of
labour input (labour supply) together with an assumption for how productive each unit of labour is
(labour productivity). In other words, the economy is assumed to move in line with its growth potential
– that is, over the long-run, capital and labour are assumed to be deployed at their maximum sustainable
levels. Of course, actual demand from year-to-year will fluctuate around this level in line with the
business cycle but, on average, the trend growth rate of the economy is determined by the quantity of
available inputs and the economy’s ability to combine these inputs in order to produce outputs.
While labour productivity across the EU is assumed to converge, the growth rate of labour supply in
Ireland is expected to slow significantly by the mid-point of the century, as a result of the ageing of the
Irish population. As a result, GDP growth over the next half century is projected to slow relative to
current growth rates.
4.1 Main components of potential growth
The baseline outlook envisages a Covid-related fall in GDP growth from 5.5 per cent in 2019 to -8.0 per
cent in 2020 before recovering in 2021 (6.0 per cent). The long-term macroeconomic projections
underpinning the projections in this report are based on the European Commission’s Spring 2020
forecasts, published in May 2020. As such, they do not include the revised estimates of growth in 2020
subsequently published by the Central Statistics Office.
Given the scope of the exercise and the focus on the long-term structural elements of the Irish economy,
revisions of the short-term growth forecasts since May 2020 do not alter the long-term picture.
Considering this, growth is expected to slow to an average of 2.5 per cent from 2022 to 2030, stabilising
thereafter at an average of 1.6 per cent per annum over the rest of the projection period to 2070. 19
4.1.1 Labour input (supply)
Labour input is a function of both the size of the workforce and the number of hours worked by each
worker. Workforce projections are based on demographic projections, which, as outlined in the previous
section, envisage a substantial slowdown in the growth of the working age population. The number of
hours worked by each worker is projected to decline modestly over the next decade or so, and to flat-
line thereafter. As a result, the contribution of labour input, i.e. total hours worked, to potential GDP is
projected to decline significantly over the next half century.
4.1.2 Labour productivity
With a projected slowdown in labour input, the sources of growth are expected to change dramatically
over the projection horizon. In particular, growth will be driven mainly by gains in labour productivity.
Indeed, labour productivity growth is expected to account for over 4/5ths of projected GDP growth over
this timeframe, averaging around 1.6 per cent per annum.
The projections for labour productivity are based on technical assumptions regarding developments for
total factor productivity (TFP) and capital deepening. TFP growth, i.e. the efficiency with which capital
and labour are combined to produce output, is assumed to converge to 1.0 per cent in the long-run.
19Expenditure and fiscal ratios in this report are primarily reported as a share of GNI*. GNI*, in turn, is assumed
to grow in line with GDP projections.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 17Capital deepening, i.e. the amount of capital per worker, is assumed to converge to a steady-state value
of 0.5 per cent in the long-run.
Figure 15: evolution of potential GDP 2000-2070, average annual growth rate
5
Employment Hours worked TFP
4 Capital deepening Potential GDP
3
2
1
0
-1
2000-2010 2011-2020* 2021-2030 2031-2040 2041-2050 2051-2060 2061-2070
* due to statistical distortions, 2015 is not included. Source: Department of Finance and Ageing Report 2021.
Table 2 below sets out the projected evolution of the main macroeconomic variables.
Table 2: Evolution of GDP, growth rate per cent per annum
2019 2030 2040 2050 2060 2070 peak
Actual GDP 5.5 1.4 1.7 1.6 1.7 1.5 2021
1. Potential real GDP (1=2+3) 5.6 1.4 1.7 1.6 1.7 1.5 2019
2. Labour input (2= 2a+2b) 2.1 0.3 0.2 0.1 0.1 -0.1 2019
: Employment (2a) 2.1 0.3 0.1 0.1 0.1 -0.1 2019
: Hours worked per employee (2b) 0.1 0.0 0.0 0.0 0.0 0.0 2019
3. Labour productivity (3= 3a+3b) 3.4 1.2 1.5 1.5 1.5 1.5 2020
: Total Factor Productivity (TFP) (3a) 1.6 0.9 1.0 1.0 1.0 1.0 2024
: Capital deepening (3b) 1.8 0.3 0.5 0.5 0.5 0.5 2019
GDP per capita 4.1 0.6 1.1 1.2 1.4 1.4 2019
Source: Ageing Report 2021.
4.2 Summary
GDP growth over the next half century will, in all likelihood, slow relative to current growth rates, as
labour supply increases more modestly as a result of population ageing. As such, any increases in
output growth over the long-term will be reliant on significant productivity gains. Considering
government revenues are closely linked to growth, a slowdown in output growth is likely to have an
impact on government revenues too. As the population ages, placing considerable upward pressure on
demographically sensitive expenditure, a slowdown in output- and by extension, government revenues
-will make it more difficult to meet these increased expenditure demands.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 18Chapter 5
Age-related expenditure projections
This section outlines the projected long-term expenditure projections related to the demographic
changes discussed in the previous section. Under the Ageing Report framework, total age-related
spending is made up of pension, health care, long-term care and education expenditure.20 The below
table details the main drivers of age-related expenditure, providing a quick synopsis on how the
projections were complied. The base year for these projections is 2019.
Table 3: Components of age-related expenditure
Component Volume Price Δ 2019-2070
(p.p. GNI*)
Pension Number of Pensioners = Base year: Pension rates in 2019.
population projections * pension
+4.9
coverage rate
Health Care Number of Recipients = Base year: Average health
expenditure per recipient in 2019.
+2.3
population projections * health status Projections: indexed to GDP per
profiles capita.
Long-Term Care Number of Recipients = Base year: Average long-term
expenditure per recipient in 2019.
population projections * size of Projections: indexed to GDP per +3.1
incapacitated population * health capita.
status profiles
Education Number of Students = Base year: Average expenditure per
student in 2019.
-0.2
population projections * enrolment Projections: Indexed to GDP per
rate capita
Source: Ageing Report 2021 and Department of Finance calculations.
5.1 Age-related expenditure projections
Table 4 sets out the projected increase in age-related expenditure over the period 2019-2070. As
outlined in section 1, the demographic assumptions underpinning these expenditure projections do not
take into account any impact from the Covid-19 pandemic, while the macroeconomic projections
assume a V-shaped recovery with a fall in GDP of 8.0 per cent in 2020 and GDP growth of 6.0 per cent
in 2021.
As outlined in Section 4, Ireland currently has a favourable demographic structure. Despite this, age-
related expenditure still amounted to 21 per of GNI* in 2019. Furthermore, this cost is expected to
increase by an average of nearly 0.3 percentage points of GNI* or €650 million each year in the short-
term. As a result, by 2030, age-related expenditure is expected to cost an additional 3.4 percentage
points of GNI* a year compared to 2019, the equivalent of an extra €7 billion a year, in today’s terms.21
20 As part of the Ageing Report framework, individual member states are responsible for the provision of the pension
expenditure projections while the European Commission provide the health, long-term care and education
expenditure projections with input from member states.
21 Based on estimates of GNI* in the CSO’s 2019 National Income and Expenditure publication.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 19Over the long-term, as the population ages significantly, annual age-related expenditure is projected to
increase to 31.5 per cent of GNI* by 2070, an increase of 6.2 percentage points of GDP, or 10.1
percentage points of GNI* compared to annual expenditure in 2019.
Table 4: annual age-related expenditure projections 2019-2070, per cent of GNI*22
∆2019-
2019 2030 2040 2050 2060 2070
2070
Pension 7.4 9.6 11.2 12.1 12.2 12.3 +4.9
Health care 6.6 7.2 7.8 8.3 8.7 8.9 +2.3
Long-term care 2.0 2.7 3.2 3.9 4.5 5.1 +3.1
Education 5.3 5.3 5.0 5.2 5.2 5.1 -0.2
Total age-related 21.4 24.7 27.2 29.5 30.6 31.5 +10.1
Based on Ageing Report framework.
Source: 2021 Ageing Report, European Commission and Department of Finance.
Pension-related expenditure, which amounted to approximately 7 per cent of GNI* in 2019, the largest
single component of expenditure, is projected to increase by 4.9 percentage points. As a result, this
component of public expenditure is projected to account for around one-third of all age-related
expenditure by 2070 (this is discussed in more detail in section 5.2). Expenditure on healthcare and
long-term care is projected to increase by 2.3 and 3.1 percentage points of GNI*, respectively, under
the baseline scenario. Operating in the other direction, the projected expenditure on education is
expected to decrease by 0.2 percentage points over the projection period, to 5.1 per cent of GNI*.
Overall, projected age-related expenditure in Ireland, as proportion of GNI*, is set to overtake the EU
and euro area average over the next 20 years (Figure 16).
Figure 16: projected change in age-related expenditure, percentage points of GDP unless stated
35.0
IE IE* Euro Area EU 27
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2019 2030 2050 2070
Source: IE* refers to Irish age-related projections scaled by GNI*. European Commission and Department of
Finance calculations.
22Statistical distortions to GDP, that overstate the size of the Irish economy, mean expenditure projections scaled
by GDP can paint an overly benign picture. GNI* is also used as a denominator in an attempt to better capture the
repayment capacity of the economy.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 20In addition, as evident in Figure 17 below, Ireland is projected to have one of the largest increases in
annual age-related expenditure in the EU over the coming decades, behind only Luxembourg and
Slovakia, when the Irish projections are scaled by GNI*.
Figure 17: projected change in age-related expenditure, percentage points of GDP unless stated
14
12 Education Long-Term Care Health Care
10
Pension Total
8
6
4
2
0
-2
-4
-6
EL EE PT FR LV ES HR IT DK LT EA EU CY BG SE DE FI AT PL RO NL BE HU CZ IE MT SI IE* LU SK
Source: IE* refers to Irish age-related projections scaled by GNI*. European Commission and Department of
Finance calculations.
5.2 Pension expenditure projections
This section focuses on the pension expenditure component of the total age-related projections, the
biggest component of age-related expenditure as defined by the Ageing Report framework. These
projections, compiled by the Department of Finance, have been endorsed by the European Commission
and members of the AWG following an extensive peer review process. In line with the Social Welfare
Act 2020,23 enacted in December 2020, the no-policy framework under which these projections were
produced, the baseline assumes the State Pension Age (SPA) stays constant at 66 years of age
throughout the entire period.
The Irish pension system is a multi-pillar system. The first pillar relates to the State Pension, or Social
Welfare pension, hereafter referred to as the ‘Social Welfare pension’, a pay-as-you-go pension system
administered by the Department of Employment Affairs and Social Protection (DEASP), funded through
social insurance contributions and tax revenue. The second pillar consists of occupational pensions
including the public service occupational pension scheme and private sector occupational schemes.
The third pillar is made up of privately funded personal or voluntary pensions.
The projections presented below relate to public pensions, i.e. first pillar Social Welfare pensions and
the public service component of the second pillar. The projections do not cover the private occupational
pension component of the second pillar or the third pillar. 24
23 Social Welfare Bill 2020 repealed the previous legislated plans to increase the State Pension Age to 67 in 2021
and 68 in 2028.
24 In line with the AWG framework. A full breakdown of the schemes included in the projections is provided Annex
2.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 21Table 5 below presents the main results of the pension projections exercise for Ireland. These
projections are underpinned by a range of demographic, labour force and macroeconomic assumptions,
as described in Sections 3 and 4.
Total pension expenditure (social welfare and public sector occupational pensions) is projected to
increase from 7.4 per cent of GNI* in 2019 to 12.3 per cent in 2070. The profiles of these two
components of total pension expenditure differ significantly. Social welfare pension spending increases
relatively consistently over the projection period. Expenditure is projected to increase by 2.8 percentage
points of GNI* between 2019 and 2040, before increasing by 2.6 percentage points to 11.3 per cent of
GDP in the 30 years following that.
In contrast, public sector occupational pension expenditure is expected to increase by 1.0 percentage
points of GNI* by 2040 before falling by 1.6 percentage points after that. This fall can be attributed to
several factors. These include the shift towards ‘integrated’ pensions over the forecast horizon. As a
result, there is a substantial reallocation of expenditure from public sector occupational pension
expenditure to social security pensions over the projection period. The fall is also driven by the
introduction of the Single Public Service Pension Scheme for new public service entrants in 2013
(including indexation by CPI). Therefore, the rise in overall pension expenditure as a share of GDP is
entirely driven by Social Welfare pension expenditure.
Table 5: projected annual pension expenditure, as per cent of GDP
2019 2030 2040 2050 2060 2070
Social Welfare Pension 5.8 7.2 8.5 9.9 10.7 11.3
Public Sector Pension 1.6 2.4 2.7 2.3 1.5 1.1
Total Pension 7.4 9.6 11.2 12.1 12.2 12.3
Rounding may affect totals. Source: Department of Finance.
5.3 Summary
The anticipated greying of the Irish population is expected to put significant upward pressure on age-
related expenditure over the coming decades. Indeed, in line with having one of the most rapidly aging
populations in Europe, Ireland is set to have one of the largest increases in annual age-related
expenditure, behind only Luxembourg and Slovakia. Digging into the detail, pensions are projected to
be the largest component of this expenditure, followed by health care.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 22Chapter 6
Impact of ageing on key fiscal indicators
The previous chapter sets out the projected cost of ageing in the context of national income. While the
use of GNI* to scale the expenditure projections presents a better indication of the repayment capacity
of the Irish economy than simply scaling the ratios by GDP, additional analysis is still needed to examine
the sustainability of the public finances in relation to the expected shift in the demographic structure of
the population over the coming decades.
For illustrative purposes, the analysis in this section highlights the potential impact of population ageing
on the budget balance and public debt in the event that budgetary policy did not adjust to the challenges
posed by population ageing.
6.1 Impact on the general government balance and debt-to-income ratio
In this no-policy-change scenario, non-age related expenditure as a share of GNI* is assumed to remain
unchanged over the forecast horizon while total revenue is assumed to move in line with nominal
GDP/GNI*.25 In this simplified scenario, deficit and debt dynamics are driven solely by the age-related
expenditure projections.
The starting point for this exercise is outturn fiscal data from 2019. While the macroeconomic
projections underpinning this analysis envisage a sharp decline in output in 2020, they do not capture
the significant increase in expenditure related to the support measures implemented by the Irish
Government during the Covid-19 pandemic. As such, the deficit in this exercise in the short-term may
be understated.
Despite this significantly more positive starting point, age-related increases in public expenditure and a
slower pace of revenue growth lead to the emergence of a significant deficit by the end of the next
decade, reaching just below 3 per cent of GDP (-4.7 per cent of GNI*). The deficit is projected to
continue to increase sharply thereafter, reaching just below 6 per cent of GDP (-9.3 per cent of GNI*)
by 2070, without policy intervention. As a result of these developments, the debt-to-income ratio is
projected to increase by 54 percentage points of GDP, or 85 percentage points of GNI* to reach 111
per cent of GDP, 180 per cent of GNI*, by 2070.
It is important to note that the simulations do not take into account second round effects or non-
linearities. For instance, continuing to run deficits of this magnitude would, almost certainly, result in a
significant risk premium, with adverse implications for sovereign borrowing costs and the interest bill.
Increases in interest rates with such elevated levels of debt would put significant pressure on the public
finances.
25 Potential GDP/GNI* growth is assumed to in parallel over the projection period.
Department of Finance | Population Ageing and the Public Finances in Ireland Page | 23You can also read
